Why mean reversion tends to work better in the dead hours

[Fairman]

Why mean reversion tends to work better in the dead hours

During quiet hours, such as the late New York evening and the early Asian morning, price often oscillates around a mean without strong directional pressure. Few participants, little news, and a lack of large orders create conditions in which small deviations tend to revert.

That makes mean-reversion strategies more natural for this period. Entries at the edges of a short-term range with small targets can show good hit rates. The challenge lies in costs: wider spreads and weaker fills reduce the net edge.

There is also a hidden risk. Occasional breaks from the range, triggered by a headline or a large order, can produce losses that cancel many small wins. In thin markets the break can be abrupt and the stop slips.

To assess the real edge, test the strategy specifically in these hours with realistic costs and slippage. Compare the distribution of losses, not just the win rate, since the tail often decides the outcome.

If the edge survives, size down relative to daytime trading because the tail risk is larger.

Does the strategy hold up in the dead hours once realistic costs are included?